National Highways Authority of India sponsored National Highways Infra Trust is coming up with NCD issue offering effective yield of 8.05%. The issue will be open from October 17 2022 to November 07, 2022.
When there is a buzz around this & investors want to know more about it, let’s understand first what are NCDs, their features, important things to know about this particular NCD issue & check its suitability to invest.
What are Non- Convertible debentures i.e. NCDs?
NCD are the investment options which are offered by companies when they need to raise funds for their operations.
In return, such companies offer & promise to return the principal amount invested with applicable interest rate for a chosen tenure by investor. NCDs can come with different tenures, coupon rate of interest & applicable to different category of investors like HNI, Retail investors.
Types of NCDs:
Non -convertible debentures come with different types.
Convertible debentures:
These types of debentures get converted into shares of the issuing company after some period of time. Till that time, investor continue to get ‘fixed coupon rate of interest’ on his/her investment. Once the debentures get converted into shares, then investor’s gains are linked to price movement of those shares.
- Non-convertible debentures:
Non-convertible debentures never get converted into shares. Investors continue to get applicable fixed coupon rate of interest till maturity.
- Secured Debentures:
Secured debentures are other type of debentures. When a company issues debentures, they promise to pay coupon rate of interest to investors. Along with this, it puts some of its assets aside which are free from any encumbrances except those which are specifically agreed to by the debenture holders.
In case company goes bankrupt or something goes wrong with the company, then it can sell those assets& repay investor’s money. This gives kind of assurance to investors who invest in the debentures.
- Unsecured debentures:
Unsecured debentures on the other hand, do not have any such back up. So, they prove riskier compared to secured debentures.
Call & Put Option in Debentures:
‘Call option’ in the debentures means the company has option to ‘call back’ the debentures issued to investors after a certain period of time. here, principal amount is repaid to the investors.
We know that, interest rates go up & down. When they go down in the market, company can exercise this option because they can raise funds from other borrowing options at lesser rate of interest.
‘Put option’ on the other hand gives ‘option to investors’ to surrender the debenture & get the principal amount back.
If the interest ate in the market goes up, then investors too can get more returns on their investment by investing in those investment options offering higher rate of interest.
That time, one can apply this option.
Tax Implication for investment in NCD:
| Type | Holding period | Applicable tax rate | When applicable |
| Short term capital gain | Less than one year | As per tax slab | If investor sells the NCD in secondary market before 1 year from investment |
| Long term capital gain | More than one year | 10% without indexation | If investor sells the NCD in secondary market after 1 year from investment |
Features of NCD:
- Fixed income:
One looking for a fixed income can get so after investing in NCD as the applicable coupon rate of interest is paid to the investor.
- Flexibility of interest payment:
Some NCDs come with cumulative option of interest pay out too. Hence, one can choose to receive interest pay outs at the maturity.
- Diversification:
Other than bank fixed deposits, bonds, corporate fixed deposits, one can explore NCD as an investment option to diversify the portfolio.
- Credit rating:
NCDs are issued by company. Being offered by a business itself, such NCDs need a credit rating to review the financial strength, repayment capacity of the company. AAA being the ‘high on safety’ credit rating usually. However, credit rating does get reviewed & may not remain the same throughout. So, keep a check on the credit rating of the NCD in your investment period.
- Liquidity:
NCDs have liquidity in the form of secondary market transaction! They get listed on secondary market & so investor can buy/sell the NCD as per availability.
- Interest pay outs are taxable:
Interest pay-outs to investors are taxable. Here, investor with higher tax slab must check post tax returns offered by NCD. If it is better than the rest available options, then one can think of the same.
Now, lets check the features of the NCD we are talking about:
Issuer:
National highways Infra Trust sponsored by National Highways Authority OF India.
Issue will be open from 17th October 2022 to 7th November 2022
The type of the NCD:
Secured, redeemable non-convertible debentures
Size of the issue:
Base size- Rs 750 Cr
With oversubscription- Rs 1500 Cr
Face value & Issue Price of the NCD- Rs 1000
Minimum Lot size- 10 NCD
1 market lot- 1 NCD
Tenure of the NCD– 13 years, 18 years & 25 years
Coupon Rates for interest payments:
| Particulars | Tenure | Interest payment | Coupon Rate | Effective yield | Maturity Amount (in Rs) |
| Series I | 13 years | Semi- Annual | 7.90% | 8.05% | RS 1000 |
| Series II | 18 years | Semi- Annual | 7.90% | 8.05% | RS 1000 |
| Series III | 25 Years | Semi- Annual | 7.90% | 8.05% | RS 1000 |
Is this NCD suitable to you to invest?
Now, lets check some facts & suitability of the NCD which can help you to decide whether it suitable for you to invest.
- NCD offers semi-annual interest pay-outs over a long-term starting from 13 year to 25 years. Those who required constant flow of income from their investments, can choose to invest.
- NCD doesn’t come with any guarantee from the Government of India. It has a AAA credit rating & it is issued by National Highway Infra Trust. So from its safety point of view, please take this into mind.
- Interest payments are taxable. Before investing, please check your portfolio with fixed income instruments like this which pay taxable interests too. If you fall under 10% or 20% tax slab, then your post tax returns are better than 30 % tax bracket investors.
- Liquidity to this investment will be available once it gets listed in secondary market. But, remember, it has long tenure of investment. If you need your invested money back, then you can get it depending on the availability of buyers in secondary market. The NCD doesn’t have any ‘call ‘ or ‘put’ option too.
- Coupon rate is 7.90 & effective rate is 8.05% is a good bet at present scenario.
So, those who are looking for a constant stream of income, can stay invested for long term, they can choose to invest in this.
However, before investing, please read all the related documents carefully, understand & review your current portfolio & check with your respective financial adviser for his unbiased opinion!